Inside The Stock Market ...trends, cross-currents, and outlook
Y2K All Over Again?
We’ve been reticent to draw links between the current bull and that of the late 1990s; we felt the last phase of the earlier episode was so extraordinary it was unlikely we’d see anything similar again in our lifetimes. But statistical parallels are on the rise, including the attempt by the S&P 500 to recoup its 2018 correction losses.
Assessing The Correction
How do today’s cyclical conditions stack up with those accompanying other stock market declines?
A Market Breadth Mystery
It’s difficult to knock a stock market in which Small Caps and major breadth measures are making frequent new highs, however, there are performance anomalies that suggest liquidity is no longer sufficient to “float all boats.” Recent underperformance of the Equal Weighted S&P 500 is a case in point, at the same time, the current dichotomy in market breadth pales in comparison to the 1999-2000 episode.
Is The Trade War Short-Term Bullish?
We believe the U.S. free-trade initiatives of the last 25 years have been wildly bullish for the stock market.
Service Sector Slowdown?
While service industries have minimal direct exposure to trade disputes, they will begin to suffer from knock-on effects if the tensions continue to escalate.
“Unlevered” Treasuries Aren’t A Bubble
It’s been popular to argue that U.S. government bonds are a bubble while U.S. equities are not. But even if we agreed, the potential cyclical total return losses in Treasury bonds are a fraction of those likely to occur in an equity bear market.
Company Leverage And The Impact Of Rising Interest Rates
Higher corporate leverage and rising short-term interest rates have not yet led to problems in the credit markets, but investors should be mindful of potential risks.
The Bulls And Bears Agree!
Yes, bulls and bears now hold their respective positions for the same reason—i.e., the U.S. economy is exceptionally strong. The stock market is accommodating this rare bipartisanship with sufficient reason to support either position.
Multiple Personality Disorder?
Market behavior is always nebulous enough to generate diverging opinions, but lately it’s been sufficiently strange to give rise to a diverging set of facts.
Where’s The Spring In The Step?
Old age alone may not kill the bull, but it can make it more susceptible to an array of life-threatening maladies.
Trouble Is “Spreading”
Junk bond option-adjusted spreads (OAS) have remained relatively tight throughout the stock market pullback and recovery (Chart 1), assuring some bulls that the action is nothing more sinister than a “healthy and overdue” correction.
Inflation Warning Flags?
After yet another benign figure on wages for June, the idea that inflationary pressures might be a problem for the stock market seems far-fetched.
A New ISM “Composite”
Over the past year, we’ve highlighted three mechanical market models based solely on components of the ISM monthly manufacturing report (Charts 1-3).
An Old Chart Whose Time Has Come?
No, it’s not a 1990s-like love affair with the stock market. But it’s surely a sign of the times when TV pundits seem to have dropped even passing references to valuation when spinning their mostly bullish market yarns.
Foreign Stocks “De-Coupling”
Market action has been broader and better than we expected given monetary conditions, and Small Cap strength seems to lend credence to contention that rates aren’t yet high enough to bite.
Apple Back Tickling 4%
Apple has added 10% to its market value since the end of January, and this action has pole-vaulted the Cupertino firm back into the rarefied air of the “4% Club” (S&P 500 weighting) for the fourth time in six years.
Trade-War Thematic Group
Trade wars or trade tensions, quietly started in 2017, hadn’t captured the market’s attention until early March this year—as demonstrated through a review of internet keyword search data of “Trade War” and “Tariff.” We present our Trade War thematic group which captures U.S. companies that could suffer the most from a trade war between the Trump administration and the rest of the world.
What A Difference A Year Makes
Early this year we chatted with the retired founder of a Midwest investment management and research firm. After living and breathing markets for six decades, this bearded and iconoclastic character had avoided financial publications, Bloomberg, CNBC, and the like for more than a year.
Is The Bull Just Napping?
Old age has certainly put no limitations on the bull’s exploits, so we should be cautious in reading too much into its meandering recovery path. However, it’s possible that action since the February low is not a recovery process but rather a countertrend bounce within a larger downtrend.
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